The Government has made it easier and more attractive for foreign companies to invest in the multi-brand sector in a bid to rope in elusive global retailers.
The Union Cabinet, on Thursday, eased compulsory sourcing norms from the small sector, exempted foreign retailers from investing in back-end infrastructure beyond the first tranche of investments brought in and allowed stores to come up even in small cities.
The proposal could face heat in Parliament as FEMA guidelines need to be amended.
While the condition for mandatory 30 per cent sourcing from the domestic small sector remains in the policy, the definition of small sector has been expanded to include units with total investment in plant and machinery up to $2 million instead of the earlier threshold of $1 million.
Moreover, foreign retailers will not have to change their vendors once they outgrow the $2 million investment threshold as the new rules say that the “small industry” status would be reckoned only at the time of first engagement with the retailer.
Sourcing from agriculture and cooperatives and farmers cooperatives would also be considered in this category.
The change in sourcing approved by the Cabinet falls short of the demand made by the Ministry of Micro, Small and Medium Enterprises that wanted that small units be allowed to continue supplying to foreign retailers only for a period of three years after they breach the threshold of $2 million investments in plant & machinery.
It is, however, milder than the changes being pushed by the Department of Economic Affairs that wanted to make small scale sourcing optional for the investors.
Another big relief for foreign retailers would be the clarification brought about in the condition that at least 50 per cent of total FDI of a minimum of $100 million brought in shall be invested in ‘back-end infrastructure’.
The Cabinet approved the proposal that the mandatory investment in backend infrastructure should be restricted to just the first tranche of investments brought in.
The conditions on allowing retails sales outlets only in cities with a population of more than 10 lakh have also been totally diluted. It has now been left to State Governments to decide whether they want outlets to come up in smaller cities.